Global gas markets pointing downwards on European imports, Asian demand, but bullish factors persist
Gas market sentiment is cautiously bearish this week, driven by tepid demand in Asia and robust LNG imports into Europe, but a bullish overhang persists that could limit the downside to prices.
In Europe, the bearish risk to the TTF price was balanced by the unplanned outage at the Troll gas field, leading to a brief drop in volumes from Norway, which is expected to be resolved shortly.
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Gas storage levels have dropped to 46% of capacity, a sharp 11% decline week-on-week, but a wave of LNG shipments from the US and declining Asian prices dented the upward price pressure.
LNG send-outs from European regas terminals are strengthening, with the 30-day moving average utilization ticking upwards sharply from around 52% in early January to nearly 70%.
Near-term weather forecasts point to above-average temperatures, dampening the demand outlook for heating.
The Germany-Poland section of the Yamal Pipeline has operated in reverse mode for nearly a month, indicating participants’ preference to use up gas from storage and potentially restock once prices decline.
Tensions between Russia and Ukraine and the impact on the Nord Stream 2 regulatory process are mitigating downside risk and will continue to be a bullish factor through most of this year, as many believe the pipeline is Europe’s only shot at a boost in export volumes from Russia.
Relative to 2021, an incremental volume of up to 30 billion cubic meters of gas may be available from Russia to Europe, with risk of almost none of that materializing if tensions between Russia and Ukraine escalate to military conflict, a scenario that would also likely disrupt existing flows.
The flattish forward curve of the TTF beyond April suggests the market is unsure about pricing this uncertainty, setting the scene for continued volatility through most of the year.
Further, Gazprom has booked no capacity via the Yamal-Europe pipeline for February, extending the shroud of mystery that has come to characterize Russia-Europe gas exports in recent times.
In the US, the Henry Hub has demonstrated resilience recently, holding above $4/Mmbtu, driven by an increase in gas demand across all sectors and a sustained uptick in LNG feedgas to over 12 BCFD.
Sabine Pass Train 6 and Calcasieu Pass are both commissioning, observed through an increase in feedgas to both facilities, and are on track for a commercial start-up in the first quarter of 2022.
Although the near-term weather forecast is mixed, gas prices could find support in the event of a cold snap in the East and worries about short-term production disruptions.
Tepid demand in Asia is another crucial factor dragging Asian LNG prices lower over the week, extending bearish influence on the TTF.
In China, short-term gas demand is likely to be muted due to transportation curbs following the latest Covid-19 surge.
Temperatures are forecasted to remain above normal levels, and buying interest appears to have shifted firmly into March.
Spot charter rates have continued to decline weekly, with assessments in both basins firmly in sub-50,000 per day territory, suggesting minor concerns with prompt shipping availability.
Finally, Indonesia’s dial down of its coal export ban imposed earlier in January likely took the teeth out of any upside risk to LNG prices.
The market has one eye on the outage at Gorgon Train 2, which may support prices if its duration is extended materially from current expectations of around 10 days.
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